The Labour Party has released the full cost of its campaign policies which add up to $5.1 billion of new operating spending from now until 2028.
This comes in below the available space in the 2024 operating allowances and leaves space for other spending in budgets from 2025, even though the allowances have been reduced.
Robertson decided to cut future operating allowances prior to the pre-election economic update to ensure the party met its fiscal rules and returned to surplus.
This has put a handbrake on spending and limited scope for expensive election promises.
Labour would have a total of $29 billion to spend across the next four years, however $15.7 billion of this has been precommitted to cover various cost pressures.
For example, $12.6 billion has been set aside for the health sector, $408 million for education sector pay increases, and a further $1.2 billion for a basket of other core services.
This leaves Labour with $14 billion of unallocated money, although some of that will still be required to meet additional cost pressures which haven’t been precommitted.
Grant Robertson, the finance spokesperson, said 79% of all new spending in Budget 2023 went towards covering cost pressures and a similar amount of room had been left for future budgets.
The Treasury warned, in the pre-election update, that the reduced operating allowances would be adequate to meet cost pressures but “trade-offs” would be required.
All up, Labour’s election promises have laid claim to $5.1 billion of the above figures and left $8.9 billion of unused room in the future operating allowances.
The party still expects to spend this money, it just doesn’t know exactly where it will go until it puts together each annual budget.
Budget 2024 would be particularly tight, with just $660 million left to fund everything outside of campaign promises and precommitments.
Robertson told reporters there wouldn’t be much need to negotiate what would go into that budget as it has been mostly decided as part of the election campaign.
Budget 2025 would have room for another $1.9 billion and the next two budgets would each have about $3.2 billion available.
Line by line
The largest campaign promise, by some margin, is the removal of GST from fresh and frozen fruits and vegetables. This would cost $2.2 billion across four years, or about $550 million annually.
National and the Taxpayers’ Union have accused Labour of underfunding the policy by as much as $411 million over that period, due to not factoring in increased demand.
Today, Robertson and Labour leader Chris Hipkins said this was incorrect and the policy already assumed every dollar saved on GST would be spent on more fruits and vegetables.
Labour’s fiscal plan was reviewed by economics firm Infometrics, which found its policies could be met within the future budget allowances.
It said some costs and assumptions had been examined and found to be “reasonable”, but none of the proposals had been independently modelled by the firm.
“None of our enquiries have highlighted any concerns or caveats around the various policy costings we have examined,” it said.
The Taxpayers’ Union said Labour should release their modelling, as the group had “almost perfectly” replicated the estimated cost without accounting for behavioural change.
The second largest promise was the increase to Working for Families tax credits, the cost of which ramps up from $195 million in 2024 to be $455 million by 2027.
Another three years of school lunches would cost $650 million in total, while apprenticeship training would add on $420 million over four years.
Labour would boost Pharmac’s budget by a total of $300 million and committed to an annual increase of $181 million to meet cost pressures. That’s $1.2 billion across the forecast period.
It plans to build 27,000 public homes by 2027 at a total cost of $765 million, fund dental care for young people for $380 million, and hire another 300 police officers for $124 million.
Finally, there are another $277 million worth of “unannounced and minor” commitments.
Both Labour and National have both decided to remove the depreciation tax benefit for non-residential buildings, which would add $2.1 billion of revenue across four years.
Labour has also found another $100 million in unspent money from previous budgets and has committed to imposing a digital services tax on multinationals in 2025 — if a multilateral agreement cannot be reached first.
Another $1.5 billion of climate-related spending would come from the proceeds of the emissions trading scheme, in addition to this amount.
End result
This fiscal plan is intended to marry up with the Treasury’s pre-election forecast and would result in core Crown expenses averaging 32.5% of GDP between 2024 and 2027.
Net debt would rise to 22.8% before easing back to 21% in 2027, while net core Crown debt would peak at 43.6% and wind up at 39.4%.
The net deficit during the period would be $17 billion, despite a $2 billion surplus in 2027, which would be an average deficit equal to 1% of GDP.
Robertson said these were prudent debt levels and meant there was enough of a buffer to respond to another economic crisis, if required.
“Our balance sheet is in a position to deal with another fiscal shock, and still meet the rules we’ve kept in place,” he said.
Core Crown expenses were on track to be 31.5% of GDP by 2027, which he said was “in the ballpark” of the long-term average which sits around 30%.
The previous National government, and the first two years of this Labour one, had kept spending closer to 27% or 28%, but this was not always sufficient to meet cost pressures.
The average going forwards would likely be about 30% or higher, due to demographic change and other macroeconomic trends, he said.
77 Comments
Let's say Govt decided to pay all its debt off next year. They would have to tax around $120 billion more than they spent over 12 months. This would reduce the net financial worth of households and businesses by the same amount. That's equivalent to taking a quarter of the money out of all NZ bank accounts and basically burning it - bankrupting hundreds of thousands of households and businesses. Worse still, paying off all of this debt would mean Govt net financial worth leaping to about $140bn - meaning that households and businesses would be in huge debt to Govt. Thus, interest and dividend payments to Govt would far outweigh interest payments flowing the other way by billions per year. There would be total chaos, pension funds would blow up, and the economy would collapse!
"This would reduce the net financial worth of households and businesses by the same amount" - by businesses you mean investment properties? Because I am pretty sure that is where our last tax cuts went.
I am not proposing they pay it off in one year. But I would rather only have my own debt to worry about that is under my own control, than also have the government's debt that is uncontrolled.
If government debt is not an issue, then lets borrow trillions and stop paying tax altogether. But I don't think that will work very well...
Yes in theory.
For many people, if you give them a 1% tax cut they won't save 1% more, they will spend 1% more. Probably on imported crap so that money goes overseas.
For many other people, if you give them a 1% tax cut they will plough that into property. Yes that means some other dude gets money from their sale, but that 1% is going to the super rich.
I would rather the government just paid some debt, and then has the ability to borrow for the next rainy day. Which may well be very soon!
Sorry, to be clear....
If Govt is in debt by $1 million, that means the private (non-Govt) sector has an asset of $1 million (a surplus if you will). So, if Govt wants to reduce its debt to zero, it has to reduce the assets of the private (non-Govt) sector by $1 million. To do this, Govt would have to tax $1 million from the private sector. This would leave Govt debt at zero, and the private sector $1 million worse off.
Better?
So government debt is issued in bonds that are held by the private sector? More debt = more bonds issued?
And the government has to pay interest on the bonds, which are held by both overseas and local investors. (Although of course local investors can hold off shore bonds as well.)
So too much debt is really only because the private sector has too much debt (or too little savings).
Someone correct me if I'm wrong.
Nearly!
Govt first creates 'debt' when it spends money into the banking system. Govt debt is initially held in commercial banks' settlement accounts earning interest (the rate of interest floats at whatever OCR is). This floating rate Govt debt is an asset of banks. When Govt sell a bond they SWAP floating rate debt in bank settlement accounts for debt held in the form of a newly created Govt bond (fixed rate debt). This bond is then sold to investors, pension funds etc and traded freely across the world. As you say, interest is paid every 6 months on Govt bonds. Current average weighted interest rate on the $120 billion of bonds held in the secondary market is around 2.5%.
A theory? You can look through the RBNZ and Treasury data and see this happening operationally everyday. How did our collective bank accounts jump up suddenly by $20 billion in late March 2020? Because Govt pumped a stack of newly created money (Govt debt) into bank accounts.
Accounting is purely a theory? It's fairly easy to follow financial flows and see where money goes and economist Hyman Minsky proved this by applying accounting rules to economics and economist Wynne Godley furthered his work on sectoral balances. If you can't display something on a balance sheet then it is likely not accurate.
Economist Steve Keen has done a few good lectures and videos based on Minsky's work and such as this one. https://www.youtube.com/watch?v=Dt4thL3eToU
Hang on.
Govt debt is initially held in commercial banks' settlement accounts earning interest (the rate of interest floats at whatever OCR is).
Government debt bank syndicated and tender issue underwriting proceeds are credited to the Crown Settlement Account and Bank Settlement Accounts are debited the same until the state credits authorised beneficiaries' banks accounts with transfer payments. Thereafter government debt underwriting banks are re-credited with the same amount.
Can't have banks collecting the bond coupon payments and the OCR credits on their settlement accounts until they have the exposure to pay interest to government beneficiary bank accounts.
I don't think we're disagreeing here. I might be missing a couple of steps (that cancel out) but...
- When govt spends... RBNZ debits CSA, credits Institutional Settlement Account of Bank
- Bank credits target bank account (bank now has additional asset and liability)
- RBNZ pays interest on institutional settlement account balance.
- Govt sells bond to bank (debiting institutional settlement account and crediting CSA)
- Bank sells bond to customer...
Where do we disagree?
However, the process of deposit creation is slightly different when the banking sector purchases debt issued by the Australian Government, since the Reserve Bank is the banker for the Commonwealth of Australia. When the Australian Government borrows from the banking sector, it holds the borrowed funds as a deposit at the Reserve Bank until the funds are spent. Link
Furthermore,
We increased the Crown overdraft facility to assist with the potential for larger-than-usual fluctuations in Crown cash flows
We provide a Crown overdraft facility to help the Government manage short-term fluctuations in its cash flows. We temporarily increased the overdraft from $5bn to $10bn for a three month period to 1 July 2020, to assist with the potential for some larger-than-usual changes in cash flows. The overdraft facility was utilised for a short period coinciding with the Government’s April 2020 bond maturity, and the account was replenished following the issuance of additional bonds and Treasury bills. Link
Yes, in NZ the Govt account that 'holds the borrowed funds' is the Crown Settlement Account. RBNZ do not pay interest to Govt on this account. In fact, it is mirage from a consolidated Crown perspective and does not feature on the Crown books. Why? Because a $10bn Crown Settlement Account balance is a liability of RBNZ and an asset of Govt. So, whether the balance is $100bn or -$100bn doesn't matter a jot to Govt finances. Hence, the easy access to an 'overdraft' facility.
Are u 100% sure about all this Jfoe..??
Putting aside your "sectoral balances" approach... use commonsense to explain how the below example reduces private sector financial wealth ?
( being mindful that tax is another story )
"As another example, let’s say KiwiSaver Fund A owns a government bond which is about to mature — i.e. it is time for the government to pay back some of its debt. KiwiSaver Fund A is a customer of Bank A. When the bond is paid back, the government transfers settlement cash from the Crown settlement account to Bank A’s ESAS account, increasing the settlement cash level and base money. Bank A gives KiwiSaver Fund A a bank deposit of the same amount, causing broad money to increase."
https://www.rbnz.govt.nz/hub/publications/bulletin/2022/-/media/project…
If I lend u $100,000.... neither of our Net worth changes.... When u pay it back....our net worth still stays the same ...all things being equal.
I'm inquiring here.... for the sale of my own understanding.
When we buy houses with our stupid big mortgages, someone always cashes out at the end of the chain of home sales. It is that cash that flows into our economy and end up in our private sector savings. We do have $320bn in savings and term deposit accounts after all.
Without that flow of newly created credit money into our economy, everything would grind to a halt - our economy is sustained by our inflated housing bubble. Between 2000 and 2010, we basically swapped high Govt debt for high private sector debt. If we want low house prices, we would need to run Govt debt much higher.
A government deficit must equal a private sector surplus as 'sectoral balances' describes and this is straight forward accounting. Government deficits add financial assets to the private sector. https://theconversation.com/how-government-deficits-fund-private-saving…
"By world standards" is a problem as a benchmark. It assumes that each country has a similar profile and capacity for debt. The argument for low public debt displays rational thinking, even if it is actually erroneous. And could NZ have a similar public debt profile as Japan? I don't think so because we don't have the economic will or capacity to sustain it.
QE repaid $50 billion of debt although perversely it is still recorded as debt on the governments books as the bonds haven't been cancelled. The government could repay all its debt if it chose to as the money is never spent, it is purely a monetary procedure for interest rate control and a book keeping exercise on the central banks balance sheet and all government spending creates new money as spending happens first and taxation and borrowing happen afterwards.
I really wouldn't call Labour's policies - which are aimed at low income earners, young families, people needing medicines, subsidies for public transport, etc. - as lollies. These people need it.
Debt be damned. If that really concerns you then vote for a wealth tax (Greens, TPM) or land taxes (TOP). Both will have the biggest recipients of the debt helping to pay it off.
Now if you really want a lollie scramble - vote National or ACT - both want to ensure tax cuts go to people earning $250k a year as well as those struggling at average wages while single people on low incomes get jack.
And as a fellow zero recipient of any of these lollies, I'm happy to keep paying my taxes to help them. Last time I got anything was when Key lied and dramatically reduced my income tax while taking a tiny portion back with a a rise in GST. I detested the unfairness then, as I do now.
This has been on my mind too. Labour has an assumed operating allowance, which may not materialise. As we've seen in the prefu and before it was released, tax income has dropped significantly. It's unclear from the information provided how much the Government will be borrowing, while at the same time adding more spending commitments. Robertson also said he would borrow to deal with any weather events or the like; so appears to be very quick to pull out the credit card.
It's also a big question as to how he (assuming he'll be Min of Finance) will manage cost pressures, or whether the unspent operating allowance will be sufficient to cover these.
As has already been noted Labour has already drawn down on some of the future operating allowances to cover teachers and nurses pay increases, and those sort of issues will always reappear in the forecast period.
I noted from the info provided that free school lunches is unfunded in the last year of the forecast period. Did anyone else see that?
So, while Labour is pleased with itself for beating National to it's reveal, questions remain about whether their overall approach is prudent, whether the operating allowance forecast assumption is reasonable and when the Government will stop running up large operating deficits and reduce its debt, thence it's interest bill.
Oh, how many promises have we had from labour and never forget all the unmandated dross that they heaped on the country. 3 ,4 or5 waters Co-governence etc. These havent gone away.
Cant believe that hipkins/cindy have never broken a promise.
Best to vote NZ First and keep the nats honest.
...and the rest
"$51 Billion Of Labour’s Policies Remain Unfunded"
https://www.scoop.co.nz/stories/PO2309/S00203/51-billion-of-labours-pol…
yip and when there is we will need to give handouts to all the businesses and people who havent bothered to save for a rainy day.... or hedge their own risks.
There used to be a thing called 'personal accountability'... with labour its been replaced with free tax payer insurance for lazy people. they should really advertise it...
.... did you forget to insure something
... cant be bothered going to work
.. is your business in trouble coz you didnt consider future risks and shocks.
.. did you build on a flood plain
never fear... coz all those taxpayers and hard workers that 'did bother' have your back.. fill out form number 'labour-handouts-10001000100' and dont forget to include your bank details so we can transfer a ton of cash for you no questions asked :)
In it for you (you being those that cant be arsed)
I would not call disabled people born with genetic disease or injured at birth by a poor medical profession "lazy" simply because they face significant systemic discrimination and denial of access to any job they apply for. But then ignorant people look at a disabled person in a powerchair unable to lift their arms and call them lazy for not taking up a tenuous fruit picker job, (they literally physically cannot perform), with no housing available in the area.
It is a toss up who really has less education experience as even though disabled people face systemic denial of equitable education morons who cannot understand basic physics & medical conditions and seek to bully the disabled (knowing the severe social and financial harm it does to them) demonstrate less critical thinking skills than fungus (but then that would be an insult to fungus).
Compare to the pension benefit which assumes a birthday at 65 is so disabling and crippling more than any actual disability. We give out huge benefits to those who do not need it, have demonstrable ability to fund themselves and are still in work (so many literally give up work to sit on a pension benefit & investment income) and ignore the severe poverty and harm they perpetuate on those who actually do need income support.
Or perhaps you meant those people who literally let their tenants do all the work for them while they benefit from significant government benefits and subsidies.
Labour have already filled all of those state houses, and they will fill as many more as they manage to build.
That is their legacy. Driving and encouraging people into dependancy on the state. Rotorua thanks you for your support.
Many of those sales in the last National govt were actually transfers into community housing providers - so still effectively a state house. I know someone who was involved then. They said that as soon as Labour got into power they were discarded as the system was centralised again.
The situation was not as simple as you make out.
Depends if these public homes are state housing? If it's just Kiwibuild by another name, then as each house is sold the cost is recouped.
Otherwise, it could be PPP where the private sector builds public homes using their capital, and has taxpayer funded underwrite for rent, repairs, tax write offs etc.
After reading Kate MacNamara’s article (26 Sep 23) in the NZ Herald “Premium” section, how can you trust Grant Robertson to keep to his budget.
Grant’s philosophy appears to be; if you need money for an emergency like Covid just top up the fund, then close it when it’s not considered needed & spend it on areas not budgeted.
Kate gave the example in early 2022 when the Covid fund only had $2 billion left, it was topped up by $5 billion using new debt. $2.7 billion was sneakily allocated to non-Covid priorities as follows;
$350 million for 3 month reduction in fuel taxes
$235 million 2 month extension of reduction in fuel taxes
$800 million on cost of living payment
$1,000 million reprioritising Covid funds to spend on his operating budget
Chief Economic advisor to the Treasury, Tony Burton, says it is an “abuse of process” to treat unused remains of an emergency contingency as “underspend”.
$2.7 billion could be called a “hole” because it had not been budgeted for.
Grant Robertson has a habit of creating un-budgeted emergency funds, in this case $5,000 million equivalent to $1,000 per person, all of it is borrowed. He spends over half this amount on election bribes which are unrelated to the purpose they were intended.
Great breakdown, and abuse is too much of an understatement. This was borrowing for election bribes at the expense of those that voted them in. They have turned on their own people in desperation and somehow are still floundering around knowing the guillotine is about to drop no matter what.
There is no 'budget' limit to the state. A state can just issue money, debt free without interest due. You create demand by enabling tax to be paid with them at discount rates vs cash and circulate it into the economy by paying for government projects with it.
The banker orientated government debt shit is parasitism.
So there you have it, 5 Billion to spare as the Sausage Roll muncher won't be going back in, so that will give me a very nice Tax cut Thankyou "Chippie" !!! I'll spend it how I see fit and not how you decide to waste it on my behalf! here's a reminder people 75% of NZ'rs do not want a Labour Govt.
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